No good: Turkey’s 2020 domestic borrowing limit doubled

The proposal on the “Amendment of the Public Financial Management and Control Law” was accepted in the Turkish Parliament yesterday as demanded by President Erdogan.

With the provisional article added to the proposal , the Treasury’s net debt usage amount will be applied as twice the net debt usage amount increased by the Treasury and Finance minister and the president, effective from January 1, 2020. Meaning, the borrowing limit set for the end of 2020 of TL 140 billion (USD 17.6bn) will be doubled. 

Deputy Minister of Treasury and Finance Aksu states the limits were breeched due to heavy spending carried out in order to reduce the social and economic effects of the Covid-19 pandemic. hence, the government wants set the borrowing limit twice the current limit at the end of the year.

Aksu added that an additional fund to public banks until the end of the year was “not considered, not planned.  He reminded that the 2.9 percent budget deficit to GDP ratio planned at the beginning of the year was now foreseen as widening to 4.9 percent by the end of this year.

The Treasury has a net borrowing limit as much as the budget deficit foreseen for each year.

When the 2020 budget was passed by the Parliament, the deficit forecast was 140 billion lira.  Yet the Treasury’s first eight-month borrowing is over 250 billion lira.

Both the Treasury and Finance minister and the president have the right to increase the relevant limits by 5 percent each. which apparently does not seem good enough given the current level of deterioration in Turkey’s fiscal accounts.

The “crowding out” effect of the decision to double the Treasury’s domestic borrowing, (its excessive borrowing requirement) will keep pressuring up the nominal interest rates, hindering GDP growth. Hence, the freshly revealed New Economic Program targets once again turn unfeasible, given the outlook where fiscal deficit to GDP ratio is expected to drop back to 3.5 percent by the end of 2023.